Assume That the Desired Reserve Ratio Is 20 Percent

question 33

Multiple Choice

Assume that the desired reserve ratio is 20 percent.First National Bank has vault cash and deposits with the Bank of Canada of $80 million,loans and securities of $320 million,and demand deposits of $400 million.Which of the following statements about First National is the most accurate?

• A)It could extend a maximum of $40 million of additional loans.
• B)It could extend a maximum of $20 million of additional loans.
• C)It could extend a maximum of $10 million of additional loans.
• D)It is not in a position to extend additional loans.

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Definitions:

Equity

The ownership interest in a company, represented by the shares held by investors.

Financial Plans

Detailed strategies outlining how a business will manage its finances to achieve its objectives, including projections for income, expenses, and investments.

Sales Forecast

An estimate of the amount of goods or services a company expects to sell over a specific period, often used for budgeting and planning.

Net Income

The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue, indicating the company's overall profitability.